Zuma believed it might not survive a potential challenge that it is unconstitutional, the government said.
Parliament passed the changes to its main petroleum law last March, alarming companies such as Shell, Total and Exxon Mobil, which are looking to explore in South Africa.
“After careful consideration of the Bill and the submissions received, the President is of the view that the Bill as it stands would not pass constitutional muster,” the Presidency said in a brief statement on Friday.
Zuma must assent to and sign all bills passed by parliament before they become South African law.
Mineral Resources Minister Ngoako Ramatlhodi said in July the government might reconsider the legislation to ensure that investors could make profits while securing a place for the state in the sector.
The government has outlined ambitious plans for oil and gas exploration in coastal waters that it says could contain as much as 9 billion barrels of crude and vast quantities of natural gas.